If it all goes into one big "account" to be used to buy and fix, how are they getting their % on the portion they have invested?  

You'll have the best luck if they are under a lease, because they can count a portion of the rent as income. 

Deductible: This is not a coverage but rather your portion of a claim.

At the end of the day you need a place to live and you're getting a significant portion of your note paid for.

But when appreciation stagnates you're still going to have the prep costs, the sales costs, and the tax on profit you'll have to consider if you go the periodic sales route.This is why @David M. is talking about the strategic use of the 1031 - it can at least eliminate the tax portion of those sales costs so you can reinvest the full amount of your equity if and when you need it. 

I can add a pet rent each month for $25-$30 a month but am more  concerned about the liability portion than anything.  

Unless you can portion off secured sections, I would be concerned about having common access to the belongings of multiple tenantsWithout knowing the details, my gut would be you will make more $$ with your plan, than you will if you basically reduce the number of rented units and offer a little more storage space.

Ended up offering a small portion of what they claimed only because they have been good renters. 

Purchase price: $245,000 I have completed the beginning portion of my first "live-in flip".

I recommend that: 1. you pay the portion above her normal usage this time.